Does Objectives-Based Financial Regulation Imply A Rethink of Legislatively Mandated Economic Regulation? A Literature Review

Abstract

Objectives-based legislation—or laws that focus on achieving particular and concrete outcomes—has become a new and important tool that financial sector regulators use to tackle large and varied financial system risks. Yet, objectives- based legislation—and the frequent principles-based regulation underpinned by such legislation—represents a stark departure from traditional ways of legislating. In this paper, we describe the problems and prospects of implementing objectives- based financial regulation—in the form of a Twin Peaks regulatory structure. A focus on the objectives of achieving financial market stability and proper market conduct would require a different approach to legislating and regulating in most other countries.